CFA Blue Sky Report Economic Impact of CSUs

Examining the Fiscal, Economic, and SocialImpacts of the California State University

Report prepared for

TheCalifornia Faculty Association

byTim GageMatt NewmanTrisha McMahon

Blue Sky Consulting Group

April

29

, 2008

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BOUT THE

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UTHORS AND

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PONSORS

This report was prepared by the Blue Sky Consulting Group, which was founded by Tim Gageand Matthew Newman in 2005 and specializes in public policy analysis, development of customforecasting models, and providing insights into high-level budget and fiscal policy issues. The report was prepared on behalf of the California Faculty Association, a union of 23,000professors, lecturers, librarians, counselors and coaches who teach in the California StateUniversity system.

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E

XECUTIVE

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UMMARY

Together with the University of California (UC) and the California Community Colleges (CCC),the California State University (CSU) provides the bedrock of California’s post-secondary education system. The CSU educates a majority of the state’s graduates in critical economicfields, such as business and engineering, and a majority of the state’s college-going students of color. The CSU is the largest, the most diverse, and one of the most affordable university systems in the country.

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With a shift toward service-related industries, the California economy faces increasing demandfor college-educated workers. According to the Public Policy Institute of California, by 2020, 39percent of jobs will need college-educated workers, but only 33 percent of the state’s working age population will hold bachelor degrees.

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In spite of the importance of higher education, the state’s publicly financed colleges anduniversities are facing a potential loss of funding as a result of the state’s current fiscal condition. As a means for addressing the state’s budget gap, the Governor has proposed to cut funding foreach of the higher education segments by ten percent relative to a workload budget calculated by the department of finance. This report examines the CSU’s role in California’s higher educationsystem; the positive economic, fiscal and social benefits of higher education that accrue to thestate; and how the proposed budget for the CSU affects California’s ability to realize thesebenefits.

Economic, Fiscal, Social Effects of Higher Education

Research indicates that there are important economic, fiscal, and social returns to investments inhigher education. The CSU is responsible for generating two distinct and important types of economic benefits.First, universities are in effect large business entities that collect and spend significant amountsof money in the regional economy. A 2005 economic impact study of the California StateUniversity system found that, overall, $1 of expenditures by the university generates $1.83 forlocal economies.

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The second type of economic benefit is less quantifiable, but no less important. Researchershave shown that universities play a role in developing economically valuable employees andincreasing the opportunity for innovation and technological change throughout the state’seconomy. In a review of the effect of universities on high technology firm location, activity, andknowledge transfer, Varga (2002) found that the location choice of high technology facilities isaffected by university presence. In their review of the regional economic impact of universities,Drucker and Goldstein (2007) assessed studies that uncovered university impacts on knowledgecreation; human capital; knowledge transfer; technological innovation; capital investment; and

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California State University’s Office of the Chancellor.

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Hanak, E. and M. Baldassare (Eds.). 2005.

California 2025: Taking on the Future

. San Francisco: Public Policy Institute of California.

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ICF Consulting. 2005.

Working for California: The Impact of the California State University.

California State University.andCalifornia State University. 2004. “Table 2: Residence of Total Enrollment, Systemwide, from Fall 1975.”

CSU Origin of Fall Term Enrollment, Fall 2003 Profile. http://www.calstate.edu/as/stat_reports/2003-2004/FOR03TOC.shtml